“I buy on the assumption that they could close the market the next day and not reopen it for five years.”
— Warren Buffett
The Warren Buffett investment philosophy calls for a long-term investment horizon, where a five year holding period, or even longer, would fit right into the strategy. How would such a strategy have worked out for an investment into AES Corp. (NYSE: AES)? Today, we examine the outcome of a five year investment into the stock back in 2014.
| Start date: | 08/21/2014 |
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| End date: | 08/20/2019 | ||||
| Start price/share: | $15.07 | ||||
| End price/share: | $15.19 | ||||
| Starting shares: | 663.57 | ||||
| Ending shares: | 797.24 | ||||
| Dividends reinvested/share: | $2.30 | ||||
| Total return: | 21.10% | ||||
| Average annual return: | 3.90% | ||||
| Starting investment: | $10,000.00 | ||||
| Ending investment: | $12,108.15 | ||||
As shown above, the five year investment result worked out as follows, with an annualized rate of return of 3.90%. This would have turned a $10K investment made 5 years ago into $12,108.15 today (as of 08/20/2019). On a total return basis, that’s a result of 21.10% (something to think about: how might AES shares perform over the next 5 years?). [These numbers were computed with the Dividend Channel DRIP Returns Calculator.]
Notice that AES Corp. paid investors a total of $2.30/share in dividends over the 5 holding period, marking a second component of the total return beyond share price change alone. Much like watering a tree, reinvesting dividends can help an investment to grow over time — for the above calculations we assume dividend reinvestment (and for this exercise the closing price on ex-date is used for the reinvestment of a given dividend).
Based upon the most recent annualized dividend rate of .546/share, we calculate that AES has a current yield of approximately 3.59%. Another interesting datapoint we can examine is ‘yield on cost’ — in other words, we can express the current annualized dividend of .546 against the original $15.07/share purchase price. This works out to a yield on cost of 23.82%.
Here’s one more great investment quote before you go:
“People who succeed in the stock market also accept periodic losses, setbacks, and unexpected occurrences. Calamitous drops do not scare them out of the game.” — Peter Lynch
